Household production of health investment: Analysis and applications

Michael Grossman's health investment model provides significant insights into allocations between both leisure and income and health and nonhealth goods. Our geometric extension (i) integrates labor-leisure choice with the consumer's production of both health and nonhealth goods and (ii) distinguishes between medical expenditures and healthcare investment, This provides a framework for examining the effects of changes in incomes and wages, alternative insurance arrangements (including managed care), travel times, waiting times, and schooling. Observed differences between the income elasticities for health goods and health investment can be resolved through relative resource intensities in the production of health and nonhealth goods.